INTERAMERICAN UNIVERSITY OF PUERTO RICO

BAYAMON CAMPUS

BUSINESS ADMINISTRATION DEPERTMENT- ACCOUNTING DIVISION

PROF. RAMON CRUZ DIAZ ACCT 1161 EXAM CHAPs 8-9-10

NAME _____________________STUDENT # _________________

DATE _______________________________________

1. Trade receivables occur when two companies trade or exchange notes

receivables.
A) True
B) False

2. Other receivables include non-trade receivables such as loans to company

officers.
A) True
B) False

3. Both accounts receivable and notes receivable represent claims that are
expected to be collected in cash.
A) True
B) False

4. Accounts receivable are the result of cash and credit sales.

A) True
B) False

5. An aging of accounts receivable schedule is based on the premise that the

longer the period an account remains unpaid, the greater the probability
that it will eventually be collected.
A) True
B) False

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 6. All plant assets (fixed assets) must be depreciated for accounting
purposes.
A) True
B) False

7. When purchasing land, the costs for clearing, draining, filling, and grading
should be charged to a Land Improvements account.
A) True
B) False

8. The book value of a plant asset is always equal to its fair market value.
A) True
B) False

9. Recording depreciation each period is an application of the matching

principle.
A) True
B) False

10. Capital expenditures are expenditures that increase the company's

investment in productive facilities.
A) True
B) False

11. Intangible assets are rights, privileges, and competitive advantages that
result from ownership of long-lived assets without physical substance.
A) True
B) False

12. The cost of a patent should be amortized over its legal life or useful life,
whichever is shorter.
A) True
B) False

13. Current liabilities are expected to be paid within one year or the operating
cycle, whichever is longer.
A) True
B) False

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14. A $20,000, 8%, 9-month note payable requires an interest payment of
$1,200 at maturity.
A) True
B) False

15. When a business sells an item and collects a state sales tax on it, a current
liability arises.
A) True
B) False

16. Interest is usually associated with

A) accounts receivable.
B) notes receivable.
C) doubtful accounts.
D) bad debts.

17. The term "receivables" refers to

A) amounts due from individuals or companies.
B) merchandise to be collected from individuals or companies.
C) cash to be paid to creditors.
D) cash to be paid to debtors.

18. On January 15, Nifty Company sells merchandise on account to Martinez

Associates for $3,000 with terms 3/10, n/30. On January 20, Martinez
returns merchandise worth $600 to Nifty. On January 24, payment is
received from Martinez for the balance due. What is the amount of cash
received?
A) $2,400
B) $2,328
C) $2,310
D) $1,680

19. The Allowance for Doubtful Accounts is necessary because

A) when recording uncollectible accounts expense, it is not possible to
know which specific accounts will not pay.
B) uncollectible accounts that are written off must be accumulated in a
separate account.
C) a liability results when a credit sale is made.
D) management needs to accumulate all the credit losses over the years.

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20. Accounts receivable are valued and reported on the balance sheet
A) in the investments section.
B) at gross amounts less sales returns and allowances.
C) at cash realizable value.
D) only if they are not past due.

21. A company purchased office equipment for $30,000 and estimated a

salvage value of $6,000 at the end of its 10-year useful life. The constant
percentage to be applied against book value each year if the double-
declining-balance method is used is
A) 10%.
B) 15%.
C) 20%.
D) 2%.

22. A company purchased factory equipment for $350,000. It is estimated

that the equipment will have a $35,000 salvage value at the end of its
estimated 5-year useful life. If the company uses the double-declining-
balance method of depreciation, the amount of annual depreciation
recorded for the second year after purchase would be
A) $140,000.
B) $84,000.
C) $126,000.
D) $75,600.

23. Equipment with a cost of $300,000 has an estimated salvage value of

$20,000 and an estimated life of 4 years or 10,000 hours. It is to be
depreciated by the units-of-activity method. What is the amount of
depreciation for the first full year, during which the equipment was used
2,700 hours?
A) $75,000.
B) $70,000.
C) $75,600.
D) $72,500.

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24. Vickers Company uses the units-of-activity method in computing
depreciation. A new plant asset is purchased for $36,000 that will produce
an estimated 100,000 units over its useful life. Estimated salvage value at
the end of its useful life is $3,000. What is the depreciation cost per unit?
A) $3.30.
B) $3.60.
C) $0.33.
D) $0.36.

25. Foyle Company purchased a new van for floral deliveries on January 1, 2014.
The van cost $48,000 with an estimated life of 5 years and $12,000
salvage value at the end of its useful life. The double-declining-balance
method of depreciation will be used. What is the depreciation expense for
2014?
A) $9,600.
B) $7,200.
C) $14,400.
D) $19,200.

26. Current liabilities are due

A) but not receivable for more than one year.
B) but not payable for more than one year.
C) and receivable within one year.
D) and payable within one year.

27. Moss County Bank agrees to lend the Sadowski Brick Company $300,000 on
January 1. Sadowski Brick Company signs a $300,000, 6%, 9-month note.
What is the adjusting entry required if Sadowski Brick Company prepares
financial statements on June 30?
A) Interest Expense 9,000
Interest Payable 9,000
B) Interest Expense 9,000
Cash 9,000
C) Interest Payable 9,000
Cash 9,000
D) Interest Payable 9,000
Interest Expense 9,000

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28. Interest expense on an interest-bearing note is
A) always equal to zero.
B) accrued over the life of the note.
C) only recorded at the time the note is issued.
D) only recorded at maturity when the note is paid.

29. The amount of sales tax collected by a retail store when making sales is
A) a miscellaneous revenue for the store.
B) a current liability.
C) not recorded because it is a tax paid by the customer.
D) recorded as an operating expense.

30. A company receives $176, of which $16 is for sales tax. The journal entry
to record the sale would include a
A) debit to Sales Taxes Expense for $16.
B) credit to Sales Taxes Payable for $16.
C) debit to Sales Revenue for $176.
D) debit to Cash for $160.

31. Indicate whether each of the following expenditures should be classified as

land (L), land improvements (LI), buildings (B), equipment (E), or none of
these (X).
_____ 1. Parking lots
_____ 2. Electricity used by a machine
_____ 3. Excavation costs
_____ 4. Interest on building construction loan
_____ 5. Cost of trial runs for machinery
_____ 6. Drainage costs
_____ 7. Cost to install a machine
_____ 8. Fences
_____ 9. Unpaid (past) property taxes assumed
_____ 10. Cost of tearing down a building when land and a building on it are
purchased

32. Manuel Company had cash sales of $86,800 (including taxes) for the month
of June. Sales are subject to 8.5% sales tax. Prepare the entry to record
the sale.

END

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